Pictet chief strategist cautious on equities rebound, warning on UK as materials and Japan offer value

The current stock market rebound is “out of step with economic reality”, according to Pictet Asset Management’s chief strategist Luca Paolini. While the sustained market resurgence appears to have bolstered equity and credit-focused hedge funds’ returns during May, Paolini warned that hopes for a quick V-shaped recovery following the coronavirus downturn look “optimistic”.

Despite being “lukewarm” on the near-term prospects for global equities overall, Pictet nevertheless sees opportunities in certain industries. Specifically, it is increasing positions in certain cyclical names battered by the Q1 Covid-19 sell-off.

These include some materials stocks – such as mining names and chemical firms – which are well-placed to benefit from China’s economic recovery, along with Japanese stocks, boosted by domestic spending amid continued travel restrictions and the USD1.1 trillion government stimulus.

As a result, Pictet Asset Mangement – the USD183 billion investment management arm of the Swiss wealth management giant Pictet Group – has closed its tactical short positions on Japanese stocks, Paolini said in a note on Friday.

“Not all beaten-down cyclical stocks look attractive,” he conceded, pointing to the financial sector, which faces a squeeze from low bond yields, with no value rally expected for some months.

Elsewhere, the UK economy could also suffer turbulence up ahead, he added, in light of the FTSE 100’s high exposure to energy stocks and major uncertainty surrounding the ongoing Brexit negotiations, now at a critical stage.

Paolini also flagged up defensive positions in Swiss equities and healthcare names, while the US remains a “favourite” in fixed income, specifically Treasuries and investment grade bonds, along with emerging market local currency debt.